Global Recession Arrives: Growth Will Fall Apart

Global Recession Arrives: Growth Will Fall Apart

Citibank is predicting a global recession: Global growth is at a precarious point after 2 to 3 years of relative calm, according to a team of economists led by Willem Buiter, which is likely to exacerbate concerns about the world’s ability to withstand a pause in China’s stunning economic growth.

The team has revised its growth forecast in advanced economies from 2.4% in January 2015 to 1.6% currently, and warned that the 2016 figure could be lower.

When adjusted for what it calls ‘true Chinese growth,’ the Citi team finds that global growth might have been as low as 2% year-over-year in the final quarter of 2015. That is the lowest since the Eurozone recession of 2012-13, and if growth remains at such depressed levels, it would qualify as a global.

Up to that point Shedlock agrees; however, he says Keynesian silliness takes over.

To avoid a recession and a greater slowdown in potential output growth than is warranted, the world needs a global version of ‘Abenomics plus,’ said Citi, which would be easy monetary policy coupled with fiscal stimulus and structural reform that would include ‘material deleveraging.’

The idea that a country can spend its way to prosperity has been disproved over and over. The most recent example is Japan, where decades of fiscal stimulus did nothing to stimulate the economy.

As a direct result of Keynesian and monetarist stupidity, Japan has the highest debt-to-GDP ratio in the developed world.

Shedlock asked Buiter what would happen when the stimulus is cut off, and he couldn’t answer, at least in terms favourable to ridiculous Keynesian thesis. Another question: Is Keynesian stimulus any different than heroin addiction, where increasing amounts are needed to reach the same high?